Robbie Mochrie: How invasion of Ukraine could lead to Russian economic collapse

Gradually, I came across many much more knowledgeable people, all of whom seemed confident that the Russian advance had stalled, and that its army could not win a swift victory – indeed, that it would possibly become bogged down in a painful stalemate.

The response of the United States and the European Union has been cautious; anxious not to provoke wider aggression, but determined to prevent a Russian victory. Ukrainians able to leave the country have been guaranteed the right to stay for some time in most EU countries. Poland has given refugees the right to work. Along with the US, European countries have provided substantial military hardware to Ukraine.

Those are the traditional ways of helping a country facing aggression. It feels, though, as if we are in the early days of a second Cold War, with Russia on one side, and a united Europe and United States on the other. There has been no formal declaration of hostilities. There are no explicit war aims. But we are seeing the use of overwhelming economic power to degrade the Russian economy and society.

The economic historian Deirdre McCloskey has suggested that at some point, probably in the 17th century, Europeans started to replace their conception of virtue as being embodied within codes of chivalry, looking instead to civil law as the vehicle for virtue. The bourgeoisie started to replace the nobility. Swords started to be beaten into ploughshares. Merchants rose to prominence. Countries began to trade, while still often fighting wars.

The huge wars in Europe in the 20th century led to the formation of the EU and the end of wars in Europe since 1945. The continent has become bourgeois. Today, forced to accept that Russia, in abandoning communism, simply appeared to embrace the rules-based international order, in which countries settle their differences through diplomacy and negotiation, the European Union, Nato and the USA have turned to bourgeois warfare.

Specifically, the decision to freeze the Russian central bank’s euro assets, estimated to be about $400 billion, has led to a very sharp devaluation of the rouble. Russia’s banking sector has been cut off from international markets. The country may be about to default on its international debt, preventing further borrowing.

Tied to those financial sanctions, there has also been careful targeting of Russia’s dependence on energy exports. Germany’s decision to suspend the opening of the Nordstream 2 gas pipeline is likely to cause a further jump in energy prices, but will be just the first step in cutting Russia off from its main export markets. Plans to prohibit the import of Russian oil and gas into the USA and the UK, together with determined efforts by the EU to find alternatives to Russian resources, are signs that Europe is at last treating energy security and decarbonisation of its economy with a fresh seriousness. As well as governments, there are many businesses which have decided to suspend activities in Russia. The first McDonald’s in Moscow was seen as an important step in the opening up of the then Soviet Union. The closure of its restaurants may well mark the ending of the period in which Russia was a trusted partner.

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Visa and MasterCard have suspended their payment services. Even the large energy companies have divested themselves of interests in Russian companies and are unwilling to buy Russian oil and gas. They might all have one eye on the impact of sanctions, but this emphasises Russia’s isolation.

Bluntly, we think of Russia as a superpower because of its nuclear weapons. Until two weeks ago, most people thought of it as a great military power. But economically Russia is weak. Imagine a world map in which countries’ size represents their national income. Russia would be slightly larger than Spain, but smaller than Italy. It would be less than half the size of Germany. And it would be barely one 10th of the size of the US.

Fighting a war is eye-wateringly expensive and it is very difficult to know for how long Russia can sustain its efforts. If it ends up in a war of attrition, and needing to suppress a Ukrainian counterinsurgency, its economy would probably collapse.

That seems to be the calculation of the US and its European allies. By making it impossible for Russia to achieve its stated war aims, and enabling Ukraine to continue fighting effectively, it can perhaps force Russia to come chastened to the negotiating table.

In fighting a fire, we can reduce the heat, or we can starve it of oxygen. Finance is the oxygen of war. Starve Russia of finance and the US and Europe can smother this war.

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It is very early to imagine the terms under which this new cold war will end, probably some years from now. Nonetheless, in the in the last two weeks, it has become much more likely that Nato and the European Union will expand.

Russia’s war will end up confirming its relative weakness and its political isolation. Perhaps, by the end of the decade, Ukraine will have joined the European Union, and objections to Turkish accession will finally have been overcome. That united, peaceful, bourgeois Europe will be Vladimir Putin’s legacy.